Will Changes in Ambulatory Surgery Center Reimbursement Slow Your Sales?

Martin Gold,Technology Access Partners

Significant changes in Medicare reimbursement always seem to cause confusion for both healthcare providers and device companies. A recently released proposal by the Centers for Medicare and Medicaid Services (CMS) to change the payment methodology for ambulatory surgery centers (ASC) can be expected to create a chaotic business environment for ASCs and the device companies that sell products to them.

As you may know, ASCs are outpatient facilities where surgeries can be performed that do not require hospital admissions. An ASC can be owned either by a hospital, an independent company or a group of physicians. In comparison with hospitals, ASCs often are considered more economical, efficient and customer friendly.

Recognizing the economic efficiencies delivered at these facilities, the CMS established a special reimbursement methodology for ASCs in 1982 that provided payment for a limited 100 procedures. Over time, the list of approved procedures was expanded to 2,500 CPT codes representing a wide variety of surgical specialties. According to data provided by Medicare, 150 of these codes account for more than 90% of the approximately 4.5 million procedures paid for by Medicare each year. Ophthalmology, pain management and gastrointestinal endoscopic procedures currently represent the highest volume of procedures performed
at ASCs.

Although the types of services delivered at ACSs are very focused, there is a distinct trend among ASC facilities to specialize in certain services. In a survey performed in cooperation by the Medical Group Management Association and the American Association of Ambulatory Surgery Centers, 45% of respondents represented single-specialty ASCs and, of those, 21% focused on orthopedics.

Over the last two decades, Medicare reimbursement to ASCs has been severely inadequate and has lagged behind reimbursement for other types of facilities. Various regulatory initiatives have limited payment increases and restricted the number and types of procedures performed at ASCs. Even now, payment rates to ASCs have been frozen at the FY 2003 level. As a result, a new payment methodology has been in discussion for several years. It was initially assumed that ASCs would
follow the same reimbursement methodology as that applied to hospital outpatient departments (HOPDs), but when the HOPD regulations went into effect in August 2000, ASCs were excluded from the change.

Finally, this August, the CMS introduced its proposal to change the 24-year-old ASC payment methodology. In its proposal, the CMS first addresses the types of surgical procedures that can be performed at ASCs. The current approved list of procedures has many shortcomings and is not inclusive of all the procedures that could safely be performed in an ASC setting. Updates to the list have been infrequent and unnecessarily administratively burdensome, even when changes to the list were necessitated by the transition of inpatient services to less costly outpatient procedures. The CMS proposes that rather than maintain a list of approved procedures eligible for reimbursement, it would allow payment for any surgical procedure performed at an ASC, except those surgical procedures it determines are not payable under the ASC benefit.
    

What’s at Stake

The procedures that would be excluded include surgical services that could not be safely performed in an ASC based on the following criteria:
•    Poses a significant health risk to the patient
•    Requires an overnight stay
•    Listed on HOPD inpatient-only list
•    Has been performed more than 80% of the time in an inpatient hospital setting in FY 2005
•    Involves major blood vessels
•    Involves prolonged or extensive invasion of body cavities
•    Involves extensive blood loss
•    Is emergent or life-threatening in nature

The current payment methodology employed by Medicare establishes nine grouper categories of payments. The procedures that are eligible for payment are cross-walked into the appropriate grouper categories, and the grouper payment is then wage adjusted for the individual ASC based on its geographic location.

Payment for medical devices was determined based on a fee schedule and paid separately. Although a separate payment for medical devices appears to be an attractive payment method, the fee schedule used historical costs from several years prior. Hence, ASCs almost always were underpaid for medical devices and often were resistant to new generations of devices that were accompanied by higher prices but not increased reimbursement.

Under this new proposed methodology, ASCs would be paid in accordance with the methodology established under the Outpatient Prospective Payment Systems (OPPS) used to reimburse hospital outpatient departments. Instead of the ASC grouper methodology, ASCs would receive payment under the Ambulatory Payment Classification (APC) system, the same methodology applied to hospital outpatient services.

Under the APC system, ASCs also would experience a change in the way medical devices are reimbursed. As described previously, such devices are currently reimbursed separately based on a fee schedule. Under the APC system, ASCs would no longer receive separate payment for devices and would only receive the bundled payment under the applicable APC.

In addition, ASCs currently are subject to a multiple procedure discount. This discounting methodology pays 100% of the most resource-intensive procedure performed on a patient but discounts all other, less intensive procedures provided during the same operative session. Normally, this would be financially detrimental to ASCs performing procedures involving medical devices, but the CMS pays devices separately. Under the hospital APC system, ASCs would be subject to the same discounting and bundling rules as hospital outpatient departments. Therefore, medical devices that are bundled within “device-dependent” APCs would not normally be discounted. Furthermore, ASCs would receive only approximately 62% of the payment amount paid to hospital outpatient departments.

A Transitional Approach?

In a measure to mitigate any unexpected financial or clinical effects, the CMS is proposing to phase in this new payment system over two years to give it time to review the results and make course corrections. In FY 2008, the payment rate would be based on 50% of the final FY 2007 ASC standard overhead amount and 50% of the final payment rate. In FY 2009, ASCs would receive 100% of the payment rate as described previously.

This current proposal is subject to public comment and subsequent modification, which may result in certain changes to this new reimbursement methodology. However, it appears likely that the system will be implemented as proposed with only minor modifications. For device companies, this means that the next two years will be a very confusing time for ASC customers as they attempt to respond and acclimate to this new system. After operating for two-and-a-half decades under the old system, it will not be an easy transition.

If we look at the business challenges that hospitals faced over the last several years while transitioning to APCs, device companies can expect their ASC customers to rely more heavily on them for guidance about coding and reimbursement for their products. In addition, due to the lean administrative staffing structures at ASCs, they will expect device companies to facilitate the transition through education, in-services and other forms of assistance.

In addition, acquisition of new products and technologies may be delayed as ASCs attempt to identify the reimbursement and financial impact of these new products under a system with which they are unfamiliar.

Martin Gold is a principal at Technology Access Partners and eMedLearn, a Suffern, NY-based consulting firm that specializes in designing and implementing reimbursement and training solutions for medical device companies. Martin can be reached at the Suffern, NY office at (845) 369-9833 or [email protected].